United States District Court, E.D. New York
MEMORANDUM & ORDER
ERIC N. VITALIANO, District Judge.
On March 14, 2014, a jury returned a verdict convicting Mair Faibish of the crimes of conspiracy to commit bank and securities fraud, bank fraud, and making false statements to the Securities and Exchange Commission ("SEC"). Having sought and having been granted an extension of time to do so, on May 16, 2014, Faibish renewed his motion for a judgment of acquittal, under Federal Rule of Criminal Procedure 29, and, in the alternative, moved for a new trial, pursuant to Rule 33. For the reasons that follow, the motions are denied.
The Evidence at Trial
Over the course of the trial, which spanned nearly three weeks, the government called 14 witnesses and introduced more than a thousand exhibits, including checks, invoices, bank statements, and charts of account, to show that Faibish had, together with others, defrauded Capital One Bank, Signature Bank, and the investors and shareholders of Synergy Brands Inc.Faibish was the Chief Executive Officer of Synergy Brands and PHS Group Inc. (collectively "Synergy"). Between April 2007 and October 2009, with the connivance of Giuseppe Gatti, who controlled a number of companies in Canada (the "Gatti companies"), Faibish used Synergy as a vehicle to execute a $1.3 billion "check kiting" scheme. At its essence, Faibish and Gatti schemed to, and did, circulate "worthless" checks among the many companies under their control, taking advantage of instantaneous cash availability privileges at Capital One Bank and Signature Bank, that artificially inflated their account balances. The effect of those privileges was magnified by the longer clearance time for the presentment of checks moving between Canada and the United States. By tapping account balances quickly, in a classic check kite, the kiters used the banks' money, in circular fashion, to support a check drawn on an account in one bank, artificially inflated by a check drawn on an account artificially inflated in another bank. The accounts were without sufficient real funds to pay all of the checks drawn on them. So long as Gatti and Faibish could move checks, with the window dressing of instant availability, and within the ordinary check clearance float, detection by the banks would be exceedingly difficult. Simultaneously, Faibish and Gatti sought, unsuccessfully, to further secret their scheme by engaging in a series of fictitious, indeed fanciful at times, transactions between Synergy and the Gatti companies, creating off-setting invoices, checks, and accounting records, hoping to add a sense of business regularity to hide their swindle. These false business records led directly to an inflation of the value of Synergy, and a fraud on its investors and shareholders. These falsehoods were later passed on, at Faibish's direction, to Synergy's auditors, which, naturally, resulted, again with Faibish's knowledge and approval, in false filings with the SEC.
As the proof made obvious, check kiting was the mother's milk that gave life to all of Faibish's other criminal misdeeds. Guiseppe Gatti, Faibish's partner in crime, provided more than enough proof for the jury to find Faibish guilty of the kite itself. To be sure, given that kiting is normally steeped in cover-up, Gatti had, at one time, professed the business regularity of the dealings between the Gatti companies and Synergy. Indeed, Faibish had hoped to use Gatti's profession of business regularity in his defense. But, during the course of Faibish's prosecution, Gatti was separately indicted in this district for the same scheme. Then, he pleaded guilty, pursuant to a cooperation agreement, and testified against Faibish. In his testimony at Faibish's trial, Gatti explained how he had acquired his businesses in Canada, and through one of them, Loretta Foods, come to develop a business relationship with Faibish and Synergy. (Tr. 368-73). He then described, in intimate detail, how he and Faibish embarked on their cross-border check kiting, and how they maintained vigilant watch over the float, check issuance, check deposit, and the creation of invoices and other business documents, to cover it up. See, e.g., (Tr. 375-82). In addition to supplying each other with phony documentation, to "provide some sort of substance to the check, " or "fluff for the auditors, " Faibish and Gatti would, as Gatti testified, send to the other a supply of signed, blank checks drawn on his own company as to be strategically completed and deposited in the opposite account holder's account. See, e.g., (Tr. 378-82; 386-92; 411-12; 499-500). The circulation of checks was carefully monitored on a daily basis, and Faibish and Gatti remained in constant daily contact, Gatti explained, to avoid "collapse"-a series of bounced checks. (Tr. 383, 404). So long as the checks continued circulating ahead of the float, Faibish and Gatti could-and did-manipulate the artificially inflated balances to purchase additional inventory. (Tr. 446).
The inevitable collapse came in October 2009, when Laurentian Bank, which held the accounts of the various Gatti companies, grew suspicious and placed a number of deposits on hold, forcing Gatti to stop payment on a number of checks previously furnished in blank amount to Faibish. (Tr. 415). A cascade of bounced checks followed. Later, when the music stopped playing, Signature Bank was the biggest player without a chair-to the tune of $3 million. (Tr. 416).
Gatti's damning tale was more than amply corroborated by other evidence. For example, Special Agent Richard Branda, of the Department of Homeland Security Investigations, recounted episodes of suspicious dealing between businesses controlled by Faibish and those controlled by Gatti. In one episode, according to trade documentation and the accompanying kited checks, Branda testified, G&R Auto Repair was to have made $83 million in purchases of flour from a company controlled by Gatti. (Tr. 38). Agent Branda testified further that import records showed that no such flour ever crossed the border, nor did any other record of any of the companies verify even the existence of the flour, much less its ultimate trade disposition. Id. In another bizarre account, related by Agent Branda's fellow investigator, Nassau County Police Detective Patrick Rail, some 30, 000 pounds of sugar was purportedly shipped to a company called Libra Marketing at Faibish's Long Island home address. (Tr. 768-69). And, in an equally bizarre deal, Christopher Dillon, a former investigator with Capital One Bank, testified that certain phony invoices detailed massive purchases, by a Faibish company, of wheat, supposedly grown in Brazil, but traded by way of Pakistan, from a company owned by Gatti. (Tr. 285-89).
The phony transactions between Synergy and the Gatti companies that served to hyper-inflate the cash balances and cash flow for the bank accounts of the various companies, and disguise the check kiting scheme, bled through and corrupted Synergy's auditing records. Actual business transactions among the companies came nowhere close to the level of business the fraudulent records of cash flow and cash balances reflected. Synergy investors told of personal confirmation by Faibish of the good news reported in Synergy's SEC filings, prompting shareholders to double down on their investments in Synergy. See, e.g., (Tr. 794, 841). The jury heard from Eric Fangmann, an expert in accounting and corporate finance, who had been retained by the Synergy board of directors to assess the company's prospects, that, following an investigation that included repeated assurances of propriety by Faibish, the rosy picture painted in Synergy's SEC filings was a fraud.
Arrest, prosecution, and, now, conviction followed.
A. The Crimes Charged
The crime of conspiracy requires: "(1) an agreement among the conspirators to commit an offense; (2) specific intent to achieve the objective of the conspiracy; and (3)... an overt act to effect the object of the conspiracy." United States v. Pinckney, 85 F.3d 4, 8 (2d Cir. 1996). To satisfy a conspiracy conviction, "the record must... permit a rational jury to find: (1) the existence of the conspiracy charged; (2) that the defendant had knowledge of the conspiracy; and (3) that the defendant intentionally joined the conspiracy." United States v. Santos, 541 F.3d 63, 70 (2d Cir. 2008); United States v. Ogando, 547 F.3d 102, 107 (2d Cir. 2008). "Although the government need not prove commission of the substantive offense or even that the conspirators knew all the details of the conspiracy, it must prove that the intended future conduct they agreed upon includes all the elements of the substantive crime." /d. (quoting United States v. Rose, 590 F.2d 232, 235 (7th Cir. 1978), cert. denied, 442 U.S. 929 (1979)) (internal citations and quotations omitted). Because a conspiracy is by its nature secretive, "it is a rare case where all aspects of a conspiracy can be laid ...